The failure of any of the usual fiscal and monetary policy tools so far raises questions about what the Federal Reserve and federal government can do in the near term to counter the forces that have battered housing prices and pushed down the stock market and are now causing a hiring slowdown.
Its budget deficit is so big and its economy so busted that fiscal and monetary policy tools can't be used.
Members could adjust their pegs in response to long-run fundamental disequillibria in the balance of payments, but were responsible for correcting imbalances via fiscal and monetary policy tools before resorting to repegging strategies.
For these and other reasons, economists soured on fiscal policy as a tool to ease economic downturns.
But almost all economists now agree with the position that monetary policy, not fiscal policy, is the tool of choice for fighting recessions.
"Fiscal policy, as a tool of macroeconomic policy, is dead," says Robert Litan, director of economic studies at the moderately liberal Brookings Institution.
Attempts to shorten the effect lag of fiscal policy have produced new policy tools.
In recent years, monetary policy, which works by changing interest rates, has superseded fiscal policy as the favored tool for jump-starting the economy.
With balance sheets impaired, Mr Koo says, bold fiscal policy is the only tool that will have any traction.But this chart captures what's so frustrating about aspects of the current policy debate.
For the next few decades, Hayek's ideas and proponents like Milton Friedman, who argued that monetary and not fiscal policy was the major tool for managing the economy, gained steady influence.
